Money Mondays: What Good News On The Financial Front Means For You

There is good news about wages out of the Census Bureau this past week.

Mellody: On Tuesday, we learned that after a slow and steady recovery in the wake of the great recession, 2015 was a breakout year for American wages. Last year, median household income grew to $56,500, up 5.2 percent from the previous year. That represents the largest single-year increase since record-keeping began in 1967. What that means is that the economic benefits of the recovery are now being spread broadly among Americans, and that is good news any way you cut it.

What is driving this increase in income growth? Why did it happen in 2015, and not before?

In large part, this is a result of strong job growth over the past few years and the tighter labor market. The economy is right on the edge of full structural employment – typically that occurs around 5 percent unemployment, and we are at 4.9 percent. When you hit full structural employment, it becomes harder for businesses to find and keep talent, so pay rises.

And in most cases, the benefits of these wage rises disproportionately flow to the least advantaged. And that shows in the numbers we saw on Tuesday. In 2015, lower-income households saw the largest income gains in percentage terms. Real household incomes rose 7.9 percent for households in the 10th percentile and 6.3 percent for those in the 20th percentile. Those in the 90th percentile saw an increase of just 2.9 percent the same period.

Was wage growth the only news from this report?

Not even close. We learned that these wage increases have reduced the number of people living in poverty dramatically. The number of people living in poverty shrank last year by about 3.5 million, or roughly 8 percent. As President Obama pointed out, that is the largest one year drop since 1968. Additionally, 2015’s wage growth was also more fair, with the pay gap between men and women shrinking to the lowest level on record.

Outside of the wage numbers, we also heard good news on the healthcare front. The share of Americans without health insurance dropped to an all-time low of 9.1 percent in 2015, according to the U.S. Census Bureau, partly because of programs and rules under the 2010 health law that expanded coverage to millions of people. The number of Americans without coverage fell by 4 million from 2014, following an even larger drop of 9 million the year before. For the second year in a row, the percentage of people without health coverage dropped for all age groups under 65 years

Was there any bad news in this report?

I wouldn’t say bad news, but there were some things that were not overwhelmingly positive, showing that we still some work to do. Take the gains of Black and Hispanic americans. While poverty rates fell most sharply for African-American and Hispanic households, their income gains were smaller than for white households. And while the wage growth was impressive last year, we are still trying to make it back to the levels they were at before the economic downturn. Currently, median household income is still 1.6 percent lower than in 2007, adjusting for inflation, and 2.4 percent lower than the peak reached during the boom of the late 1990s.

Overall, do you expect the positive economic trends to continue?

I do. The fundamentals of the economy are strong. Remember that consumer spending accounts for over two-thirds of our economy. Job numbers continue to be consistent. With wage growth and income rising, consumers have more money in their pockets to introduce back into the economy. Corporate America continues to be on a positive trajectory. And the reforms that were made over the past 8 years have meant that it is much harder for dangerous financial bubbles to form. Right now, america’s economic outlook is bright.